Alibaba.com ( ALBCF , quote ) has been making headlines with its attempts to create a new social network and untangle itself from Yahoo's ( YHOO , quote ) 40% ownership. However, Daiwa Capital Markets analysts point out that the Chinese internet company's problems run deeper.
Analysts Alicia Hu, Alan Kam, and Thomas Kwon have examined Alibaba's third quarter numbers and found them lacking on several counts.
Net profits declined 12%, the first quarter-on-quarter drop in two years. QoQ revenue declined for the first time since 2008 and year-over-year growth was at its lowest since the company's November 2007 Hong Kong listing.
Hu, Kam and Kwon note that Alibaba is "probably the only Chinese Internet company with a cyclical profile."
However, the company's last trough in share price happened while revenue and paying membership were increasing.
The opposite is true today, and the analysts say that the company's price-equity ratio now "looks expensive compared to valuation in 2008."
The Daiwa analysts see a possible upside for Alibaba if the company can increase its value-added services. But even if Alibaba slips away from Yahoo, investors should remain wary.